American LNG Won’t Solve Russia’s Energy Bullying

Europe’s sanctions on Russia in the wake of the Ukraine crisis are weak, and for good reason: Europe gets one-third of its natural gas from Russia. Europe doesn’t have many options to replace Russia’s gas, and Russia’s made it clear that they’re not afraid to turn off the taps when they’re not happy about something.

Talk about a playground bully. So what is Europe to do?

If you ask the U.S. oil and gas industry, the answer is the export of U.S. liquefied natural gas (LNG). Their argument is that expediting regulatory approval for LNG exports from the United States will provide Europe with a stable supply of affordable gas, thus eroding Russia’s stranglehold on the region.

Unfortunately, that argument is a stretch, at best. Currently, only one LNG export terminal has received full federal approval to begin construction, and that site won’t be ready until late 2015. Even if the federal government were to green light additional projects tomorrow, those too would not be ready until several years down the road, providing little relief to Europe in the near-term.

More importantly, even after robust LNG export infrastructure is in place, the U.S. government does not have authority to demand where those exports go. Those decisions lie in the hands of industry, and these folks aren’t in it for their altruism.

There is huge demand for LNG in Asia, particularly Japan, where the offloading price for LNG is ~$19 per MMBtu. Compare that to the offloading price in Europe, which currently stands at ~$10 per MMBtu. Simple arithmetic shows that there is significantly more profit to be made exporting gas to Asia. Further, if U.S. natural gas prices continue to rise closer to the $10/MMBtu mark–not completely unrealistic in the medium-term considering recent prices of $6/MMBtu–the price differential between what gas companies can make at home and what they can make in Europe may not justify exporting to that region.

As usual, market forces win. Europe cannot look to the United States to solve its Russia problem – if you don’t believe me, read what President Obama has to say about it. Instead, it needs to look inward, implementing aggressive energy policies at home to wean itself off of Russian gas. And it can be done.

In fact, it’s been done. In 2006 and 2009. Russia shut off gas to Ukraine—which affected all of Europe. Chastened, Europe responded by increasing imports from Norway and Qatar, building more LNG ports and improving pipeline connections across the continent.

Germany has been continuing that move to energy independence. Germany has set a national goal of powering 60% of its energy needs with renewable sources by 2050, and in recent years, this push has already begun to pay off. There have been days where solar alone has powered 40% of the country’s peak electricity demand.

Another leader is France, where over 75% of the country’s electricity demand is met by nuclear power. Though nuclear power is controversial in its own right, it is currently the most readily scalable “clean” technology available, and Germany may even be tempted to reconsider its nuclear decommissioning plan in light of current events.

Europe has proven that it can diversify its energy portfolio to avoid Russia’s fickle ways, but these efforts haven’t gone far enough. European leaders need to respond to this crisis with a swift, comprehensive energy plan that invests in as much domestic power generation as possible.

As the European Union knows, all solutions must be on the table in order to continue to dent Russia’s leverage and bully tactics. Traditional energy sources such as shale gas will certainly play a role in any plan–it’s an unavoidable necessity–but Europe must also double down on its commitment to renewable energy technologies such as solar, wind and hydropower.

This is no longer just a matter of being “green.” It’s a matter of developing smart, diversified energy policies that serve the long-term interests of European national security using the resources available today.

Europe’s sanctions on Russia in the wake of the Ukraine crisis are weak, and for good reason: Europe gets one-third of its natural gas from Russia. Europe doesn’t have many options to replace Russia’s gas, and Russia’s made it clear that they’re not afraid to turn off the taps when they’re not happy about something. – See more at: http://www.antennagroup.com/american-lng-wont-solve-russias-energy-bullying/#sthash.ipc0JaVQ.dpuf

Europe’s sanctions on Russia in the wake of the Ukraine crisis are weak, and for good reason: Europe gets one-third of its natural gas from Russia. Europe doesn’t have many options to replace Russia’s gas, and Russia’s made it clear that they’re not afraid to turn off the taps when they’re not happy about something.

Talk about a playground bully. So what is Europe to do?

If you ask the U.S. oil and gas industry, the answer is the export of U.S. liquefied natural gas (LNG). Their argument is that expediting regulatory approval for LNG exports from the United States will provide Europe with a stable supply of affordable gas, thus eroding Russia’s stranglehold on the region.

Unfortunately, that argument is a stretch, at best. Currently, only one LNG export terminal has received full federal approval to begin construction, and that site won’t be ready until late 2015. Even if the federal government were to green light additional projects tomorrow, those too would not be ready until several years down the road, providing little relief to Europe in the near-term.

More importantly, even after robust LNG export infrastructure is in place, the U.S. government does not have authority to demand where those exports go. Those decisions lie in the hands of industry, and these folks aren’t in it for their altruism.

There is huge demand for LNG in Asia, particularly Japan, where the offloading price for LNG is ~$19 per MMBtu. Compare that to the offloading price in Europe, which currently stands at ~$10 per MMBtu. Simple arithmetic shows that there is significantly more profit to be made exporting gas to Asia. Further, if U.S. natural gas prices continue to rise closer to the $10/MMBtu mark–not completely unrealistic in the medium-term considering recent prices of $6/MMBtu–the price differential between what gas companies can make at home and what they can make in Europe may not justify exporting to that region.

As usual, market forces win. Europe cannot look to the United States to solve its Russia problem – if you don’t believe me, read what President Obama has to say about it. Instead, it needs to look inward, implementing aggressive energy policies at home to wean itself off of Russian gas. And it can be done.

In fact, it’s been done. In 2006 and 2009. Russia shut off gas to Ukraine—which affected all of Europe. Chastened, Europe responded by increasing imports from Norway and Qatar, building more LNG ports and improving pipeline connections across the continent.

Germany has been continuing that move to energy independence. Germany has set a national goal of powering 60% of its energy needs with renewable sources by 2050, and in recent years, this push has already begun to pay off. There have been days where solar alone has powered 40% of the country’s peak electricity demand.

Another leader is France, where over 75% of the country’s electricity demand is met by nuclear power. Though nuclear power is controversial in its own right, it is currently the most readily scalable “clean” technology available, and Germany may even be tempted to reconsider its nuclear decommissioning plan in light of current events.

Europe has proven that it can diversify its energy portfolio to avoid Russia’s fickle ways, but these efforts haven’t gone far enough. European leaders need to respond to this crisis with a swift, comprehensive energy plan that invests in as much domestic power generation as possible.

As the European Union knows, all solutions must be on the table in order to continue to dent Russia’s leverage and bully tactics. Traditional energy sources such as shale gas will certainly play a role in any plan–it’s an unavoidable necessity–but Europe must also double down on its commitment to renewable energy technologies such as solar, wind and hydropower.

This is no longer just a matter of being “green.” It’s a matter of developing smart, diversified energy policies that serve the long-term interests of European national security using the resources available today.

Your move, Europe.

– See more at: http://www.antennagroup.com/american-lng-wont-solve-russias-energy-bullying/#sthash.ipc0JaVQ.dpuf

Tomi is an Account Supervisor at Antenna Group, focused on clients in the energy technology sector and representing companies in the solar, alternative fuels, oil and gas and materials science sectors. Prior to joining Antenna, Tomi worked at both the National Geographic Education Foundation and OCP Group, the world's largest phosphate and phosphate derivatives company in the world, on developing new communications strategies, and he also served as a metro reporter for The Dallas Morning News for two years. A graduate of Georgetown University, Tomi graduated with honors and received a B.S. degree in International Politics.

Thad, US LNG from new facilities and new ships would cost/1000 cubic meter about $12 in Europe and $16 in East Asia.Brussels, frustrated as its expansionist EU policy has come to an abrupt halt, may be sufficiently irrational to replace $4 Russian gas, AND pursue high cost RE policies, with EU unemployment at 12%, AND a stagnant EU economy.

Restarting the eight nuclear power plants would change little. The present German power generators can handle a stop of Russian gas with ease.Only ~10% of German electricity is generated using gas, and part of it is delivered by the Netherlands.The problem is that buildings are heated with gas. And that is not easy to replace. While such heating is necessary due to the rather cold climate in Germany (compared to e.g. France).

Bas, much natural gas is used in the chemical and drug industries, also not easily replaced.It would take at least two decades plus tens of billions of dollars to eliminate Russian gas from Europe, and replace is with more expensive gas from other sources; just what Europe needs with 12% unemployment and a stagnant economy.

Willem, BasGenerally a ground heat sink installation is expensive, but there are many variables, climate, soil conditions water availability etc. For example, Berlin has lots of surface water and problems with high water table, ideal conditions for this technology.If I were building a new home, factory, office etc. I would include storage for a large mass of insulated water under the building. Use heat pump and/or solar to warm it during the day in winter and heat pump in the summer to cool it at night when air temp is lowest, electricity is abundant and perhaps cheaper, and COP highest.For existing buildings you could add storage under the yard or parking lot. A water ditch would be great if it flows in the winter, also great in summer. But there may be existing/future laws against adding or removing heat, if everybody did it there could be problems.Wiki is probably a good place to start.

@WillemThe prices you quote in your first paragraph are for 1000 cubic FEET, not 1000 cubic meters. That makes them wrong by a factor of 35.3 on the low side.Russia also does not sell its gas to European customers for the equivalent of $4 per 1000 cubic feet (which is also frequently stated as MMBTU for million British Thermal Units.)The monthly prices since September 2013 have remained relatively constant at almost $11/MMBTU.http://www.indexmundi.com/commodities/?commodity=russian-natural-gasNatural gas from the US based on our current — artificially low prices — would cost about $12/MMBTU, as you stated, but that it not as far from Russian prices as you stated.On the other hand, I agree that it is irrational to think that very many investors are going to sink the kind of capital investment required into an LNG delivery infrastructure on the hope that current North American gas prices will remain in place for the next 20 years while they recover their capital investments.Rod Adams, Publisher, Atomic Insights

Just saw a big LNG tankship this weekend when we biked through Rotterdam harbour (at the ‘maasvlakte’; using the ferry to Hoek v. Holland).So we still import LNG from other countries (N-Afrika, etc). That seems to be competitive against the present whole sale gas prices here in NL/Germany (which incl. Russian gas).I do not see why cheap US gas couldn’t compete as LNG from other countries clearly can. Think the longer distance over the ocean (compared to N-Afrika – Netherlands) adds little to the costs (taking the really huge size of the LNG tanker I saw).

Rod,You are right.US about $4/1000 cfEurope about $11/1000 cfAsia about $16/1000 cfThe cost of any US LNG from new terminals and new LNG ships would be much higher than $4/1000 cf, and as US gas prices increase due to exports, even higher.